How to Calculate Default Rate

Default rate is the number of defaults a company has compared to the number of loans it has outstanding. The default rate shows the percentage of loans that were defaulted on over a specific period. Usually the period analyzed is monthly, quarterly, semi-annually or annually. The higher the default rate a company has, the worse it is at issuing solid debt and collecting on the debt issued. Analysts can use the same calculation to see the rate a single company defaults on its loans.

Default rates show the efficiency of loan collections.

Step

Determine the total number of defaults on loans a company has over the course of a year. For example, a small lender had three people default on personal loans this year. Alternatively, a small company defaulted on one loan during the year.

Video of the Day

Step

Determine the number of loans outstanding during the year for the lender. In our example, the small lender had 100 loans outstanding during the year. In the alternate; the small company had 5 loans during the year.

Step

Divide the number of defaults by the number of loans outstanding during the year. In our example, 3 divided by 100 equals a 3 percent default rate. In the alternative, 1 divided by 5 equals a default rate of 20 percent for the year for the small company.